What Really Happens When You Sell Your House for More Than You Owe on a Loan
What happens if you sell your house for more than you owe on your loan? If you find yourself asking this question, congratulations are most likely in order. Selling a house for more than the value of your mortgage often means you’ll walk away with a nice profit.
But not always. Sometimes, even if a home’s sales price is higher than the mortgage amount owed, a seller may not see a dime—or may even owe money at the closing table instead! Here’s how to figure out if you’re going to make or lose money when you sell your house.
Where your profits go when you close the deal
During your home closing—the final leg of the sales process where you swap your house keys for a check—there’s traditionally a go-between who handles transferring funds from buyer to seller. That might be an escrow company, a real estate agent or attorney, or a title company, depending on where you live, but they’re the ones who will take the buyer’s money (usually a check from the lender) and use it to pay off the seller’s mortgage, says Bryan Zuetel, managing broker of Esquire Real Estate and the managing attorney of Zuetel Law Group, in Pasadena, CA.
Real estate agent commissions
First up, the seller’s real estate agent has to be paid a commission—as well as the buyer’s agent, if the buyer had one, says Robert Berliner Jr., a real estate attorney with the Berliner Group, in Chicago.
The typical commission for a seller’s agent is around 5% to 6% of the sales price of the house, although just how much your real estate agent gets will be outlined in the listing agreement—the document you signed when you hired the agent to sell your house.
Traditionally, the title company, escrow company, or lawyer handling your closing will cut a check directly to your listing agent, Berliner says. This agent will split this with the buyer’s agent who helped secure the deal.
If for some reason there isn’t enough money left over from the sale to pay your agent, you’ll need to be ready to write a check at closing to make up the difference.
We know: It’s a downer to write a check on the day you sell your home, but it happens if housing prices have dipped since you bought the place. Comfort yourself with the thought that you might be getting out before suffering more serious losses.
The buyer typically pays most closing costs, but sellers often face some closing costs, too. These fees can amount to as much as 1% to 3% of the purchase price of the house. Everything from recording fees to title insurance premiums can come out of the sales price of the house—aka the money the buyer pays to the seller—as part of closing.
And you guessed it, these fees will be paid during the process, so they’ll come right out of the money left over after you pay off your mortgage.
After the agents get their cut and the closing fees are settled, any taxes you owe on the property will be levied. In many states, taxes are paid a year in arrears, Berliner says. In other words, the real estate taxes paid in 2019 are actually the taxes on the property for the year 2018. Your buyer isn’t responsible for taking on the taxes for the time you owned the property—which means you may have to pay up.
Some states also levy a transfer tax when property is sold, which falls on the seller to pay out of the price of the home.
Just how much you’re facing can vary greatly depending on where you live, Zuetel says, but you can expect costs roughly from $50 to $225.
Anything left? It’s yours!
After your loan is paid, the agents get paid, and any fees or taxes are settled, if there’s money left over, you get to keep the balance. Congratulations! The money can be paid by check or wired straight into your account.
To see just how much you’re expected to net, you can ask your closing attorney, escrow officer, or even the title company for a draft settlement statement before closing. This document details all of the closing costs, real estate commissions, fees, and taxes that will come out of the sales price of the home.